The Benefits of Offering a High-Quality 401(k) Plan to Your Small Business Employees

Author: Siân Killingsworth / 10 Apr 2023 / 401(k) Plan Information, Small Business 401k

If you’re looking to set your small business apart, you’ve come to the right place. As a small business owner, you’ve probably faced some tough challenges – and attracting and retaining top talent is likely one of them.

So how do you become a business everyone wants to work for? Two words: Competitive benefits. More specifically, a high-quality 401(k) plan.

401(k) 101: An Intro to Retirement Plans

So, what’s a small business 401(k) plan? It’s a retirement plan that allows employers to:

• Attract and retain talented employees
• Integrate payroll
• Automate your plan administration
• Receive up to $16,500 in tax credits over three years when you open a 401(k).*

(*Up to $5,000 per year, plus an additional $500 per year for automatic enrollment for the first 3 years if qualified under IRS guidelines)

Employees contribute a percentage of their salary to the plan, and often, the employer will match a portion of the contribution (you don’t have to, but it’s encouraged). The money in the plan is invested, and over time, it grows tax-free.

Benefits of Offering a Small Business 401(k)

Offering a high-quality 401(k) plan to your employees can provide several benefits to them, including:

Retirement Savings

One of the most obvious benefits of a 401(k) plan is that it provides employees with a way to save for retirement. By contributing to the plan, employees are able to grow their retirement savings tax-free, which can be a huge advantage over other types of investments.

Employer Matching

Many employers offer a matching contribution to their employees’ 401(k) plans (and here’s some help in figuring this out, if you don’t already). This can be a great incentive for employees to participate in the plan, as it essentially gives them free money. Bonus: Contributions you make are tax-deductible!

Tax Benefits for Employees

Contributions to a 401(k) plan are pre-tax, which means that your employees can potentially reduce their taxable income by contributing to the plan. Additionally, the money in the plan grows tax-free until it’s withdrawn, which can provide a significant tax benefit in retirement.

Tax Benefits for Employers

PSA: Your small business also benefits from tax advantages by offering a 401(k) plan. For example, you can deduct your contributions to your employees’ savings. Additionally, offering a 401(k) plan can help to reduce the company’s taxable income. As a small business, you could qualify to earn up to $16,500 in tax credits over a 3-year period by starting a qualified retirement plan with auto-enrollment.

Investment Options

401(k) plans typically offer a range of investment options, including stocks, bonds, and mutual funds. This allows your employees to choose investments that align with their financial goals and risk tolerance.

Attracting and Retaining Employees

An easy way to make your small business competitive with much larger companies? Offering a high-quality 401(k) plan. This can be valuable in attracting and retaining employees, especially if you offer matching contributions.

Increased Productivity

Studies have shown that employees who are financially secure are more productive. By offering a 401(k) plan, you are helping your employees achieve financial security, leading to increased productivity and better job performance.

How to Offer a High-Quality 401(k) Plan

If you’re interested in offering a high-quality 401(k) plan to your employees, there are a few things to keep in mind:

Choose a Quality Plan Provider

The quality of your 401(k) plan will depend largely on the plan provider you choose. Look for a provider with a strong reputation, good customer service, and a range of investment options. You may also want to consider a provider that offers additional features, such as educational resources or financial planning tools. We suggest looking for low fees and transparent pricing, too!

Communicate the Benefits to Your Employees

Once you’ve chosen a plan provider and set up your 401(k) plan, it’s important to communicate the benefits to your employees. Make sure they understand the value of the plan and how it can help them save for retirement. Consider offering educational resources or workshops to help them make informed investment decisions.

Monitor and Evaluate the Plan

Finally, it’s important to monitor and evaluate your 401(k) plan on an ongoing basis. Keep track of participation rates, investment performance, and feedback from employees. Use this information to make adjustments as needed and to ensure that your plan continues to meet your employee’s needs (and your own!).

 

Ubiquity is not a registered investment advisor and no portion of the material herein should be construed as legal or tax advice. Please consult with your financial planner, attorney and/or tax advisor for advice.